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On Wednesday, February 3rd, 2016, Technicolor issued a press release stating that the company had decided to “license its HEVC IP portfolio directly to device manufacturers rather than through the HEVC Advance patent pool.” The release further stated that Technicolor had signed a “material patent license” with an unspecified third party which it hoped would “pave the way for the industry to adopt the HEVC standard.”

Technicolor indicated that it had “chosen to license its patents for use in devices and does not plan to license industry players for content streaming.” It hinted at its motivation for leaving HEVC Advance by commenting that the “early licensing success demonstrates the quality of Technicolor's IP position...and provides evidence of the Group's ability to generate value more effectively than would have been possible through participation in a patent pool.” In other words, Technicolor felt that it could make more money faster by licensing separately.

Later the same day, HEVC Advance issued a press release thanking Technicolor for its participation in the pool, and specifying that it was removing the 12 Technicolor patents from the HEVC Advance Patent pool. The release goes on to claim that, “HEVC Advance remains the most effective and efficient means to acquire a license to a substantial portfolio of the most important and foundational HEVC essential patents.”

Isolated Event or Start of the Stampede?

Technicolor’s withdrawal raises multiple questions. First, was the withdrawal an isolated event or the start of a stampede? Second, will Technicolor’s withdrawal result in a royalty decrease? Finally, what does the withdrawal mean for the industry as a whole?

Regarding the first question, I emailed HEVC Advance CEO Pete Moller to get his comments. Before he responded, I spoke with a source familiar with MPEG LA’s licensing terms to get an understanding of whether or not their licensors can leave at any point during the term. I learned that at least in the case of the HEVC license, no MPEG LA licensor can terminate its participation before January 1, 2020, and even then its termination would only affect future licensees, not those who had signed before the termination. Either HEVC Advance’s contracts were different or Technicolor had not yet signed.

Moller called soon thereafter, and I learned it was the latter. Final licensing agreements had been sent to the HEVC Advance patent holders in mid-January, and most were either signed or in the final stages of execution. Technicolor had expressed multiple concerns about the licensing terms for several months. “Technicolor is an outlier situation that in no way portends any impending doom for the HEVC Advance pool," Moller said. "It’s just the owner of a small number of patents who decided it was better to license themselves.”

To learn more about Technicolor's motivation, I emailed Lane Cooper, the company's vice president of corporate communications. Via email, he said, “Our decision to pursue direct licensing is mostly related to the following:

"We do not support some decisions of the pool—such as licensing content streaming.

"We initially thought that establishing a pool would help to avoid fragmentation. However, this has not been the case.

"Ultimately, we concluded that by pursuing a direct licensing approach we will make our technology available more quickly to the industry, get better results, and achieve faster payback.”

Cooper would not share the name of the initial licensee, stating that it was a “material agreement which should imply that it’s not a small company.”

Clearly not all HEVC Advance Licensors have signed the final licensing agreement, but Moller believes all the others will. This feels right, because large companies like Dolby, GE, Philips, Mitsubishi, and MediaTek—the other licensors listed on the HEVC Advance website—typically don’t lend their names to new ventures without being committed. Still, it’s surprising that the agreements aren’t yet finalized. It would be worth a press release to let us know when they are.

Will HEVC Advance Reduce its Royalty Rate?

No. Technicolor has 12 patents, leaving about 390 remaining on the patent list, with several hundred more to come once MediaTek’s patents make it through the examination process, Moller says.

“HEVC Advance does not believe that Technicolor has a material portfolio of HEVC essential patents,” Moller adds, leading to the decision not to reduce prices.

On a positive note, royalty prices won’t increase when additional licensors join the pool, or when existing licensors add patents to the pool, which Moller expects to grow significantly over the next few years.

What Does This Mean for the Industry?

For content producers, it means nothing, since Technicolor isn’t seeking content-related royalties. For device manufacturers, it likely means another license agreement to sign, plus all required reporting and administration. Technicolor is an experienced technology licensor, so expect the process to be relatively straightforward and seamless. Overall, instability is never good for an emerging standard, though this event looks more like a molehill than a mountain.

After widespread criticism of its initial royalty proposal, HEVC Advance has reduced royalty rates and decoupled them from attributable revenue, as well as provided incentives for early adoption and a royalty credit for small publishers.

Netflix compared 5,000 clips from 500 titles in its library using the x264, x265, and libvpx codecs. x265's implementation of HEVC was the clear winner on quality and efficiency, but whether that matters in light of compatibility and licensing issues isn't so obvious.